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Shanghai's property market, battered by severe slump, is poised to rebound. Foreign companies are expected to fuel the growing demand. by Tom Brooke hanghai's jagged skyline is a tableau of graceful, soaring -- but often empty -- towers mixed with cranes busy building dozens more, even though the property market has been in a deep slump since it's peak five years ago.
But there are now some signs that the market is poised for a recovery. Demand is strong and rental rates for "Grade A" office space in the coveted central Puxi district is edging up, according to property manager Jones Lang Lasalle. Local companies, riding the crest of a strengthening local economy and healthy exports, are upgrading to Grade A offices, reckoning deals can't get much better. Rapidly growing dot-coms are also grabbing up space. "The market hit bottom around Chinese New Year (in February) in my opinion," says Patrick Kelly, head of the commercial division of real estate consultant Chesterton Petty. "Within the last year, local companies have shown much greater interest, accounting for about 30-40% of the market for Grade A offices." Foreign companies, in part due to the government's decision to grant wider access to the banking and insurance sectors earlier this year, are expected to further fuel demand for quality office space. And China's entry into the World Trade Organization (WTO) will boost demand for years to come as more foreign companies establish offices in Shanghai, analysts predict. Civic Square, on Nanjing Lu near the Portman Building, is a just one example of a property that could benefit from the market's rebound. Since opening in May, the building has leased more than 50% of its space. Half of the Fortune 500 companies have already set up in Shanghai, attracted by the city's improving infrastructure, cosmopolitan atmosphere and quality of life. Some analysts say Shanghai beats Hong Kong on many "lifestyle" issues.
Talented engineers, competitive costs and a belief that Shanghai will be a major commercial center in the Asia-Pacific region convinced Alcatel to set up shop in its biggest regional market. There also isn't any new land or building permits, effectively capping supply. "The government isn't selling any more land or issuing building permits," explains Wendy Yow, Chesterton Petty's general manager. Rents are also likely to rise as demand improves. A few years ago, many developers signed their tenants to short-term leases that will start expiring in 2001. Landlords will then seek higher rents, betting that companies will be less keen to move after spending to fit out their offices. China's imminent membership in the WTO is leading local landlords to hold or raise rents on the belief there will be an influx of foreign companies needing office space. But WTO membership will only have a real impact a few years down the road, according to the Chesterton Petty analysts. Kelly, having witnessed the market's rise and painful fall close up, advises caution. But, he adds, breaking ground on well-located, high-quality buildings may not be a bad move. Investors from Hong Kong, Japan and Singapore have been most active recently with Grade A offices and high quality residential developments. "The market is at the very beginning of a new cycle,'' says Kelvin Yang, an analyst at Jones Lang Lasalle, "and that's encouraging some developers to revive prime downtown office projects." | ||||||
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